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Euro Weakens as Markets Look Past Macron Victory Toward Draghi

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Euro
  • Euro Weakens as Markets Look Past Macron Victory Toward Draghi

The euro dropped from a six-month high against the dollar as relief over Emmanuel Macron’s victory in the French presidential election was replaced by concern the European Central Bank will maintain currency-weakening stimulus.

The shared currency fell versus most of its major peers as Macron’s expected victory over Marine Le Pen spurred investors to take profits. ECB Executive Board member Peter Praet said last week the region’s recent economic improvement isn’t yet sufficient reason to tighten policy. ECB President Mario Draghi will speak to the Dutch parliament on Wednesday.

“The euro is a sell on rallies above 1.10 against the dollar as the ECB’s senior leadership under Draghi and Praet remain cautious about the outlook for euro-zone inflation, while U.S. payrolls suggests the Fed will continue to hike rates,” says Mansoor Mohi-uddin, a Singapore-based strategist at NatWest Markets, a unit of Royal Bank of Scotland Plc.

The euro is likely to be supported on any dips, according to Peter Dragicevich, a foreign-exchange strategist at Nomura Singapore Ltd. “The mix of an improving euro-zone economy, the looming shift by the ECB toward a tapering of its asset purchases and less accommodative monetary policy stance, and the euro zone’s large current account surplus (equal to about 3.4% of GDP) are positives for the currency,” he said.

  • EUR/USD falls 0.1% to 1.0990 after rising to 1.1023, highest since Nov. 9
    • Bids at 1.10 for options desks slowed the initial decline but once they were filled, the down move accelerated, according to an Asia-based FX trader not authorized to speak publicly
    • “The euro is under downward pressure as euro longs unwound their positions, especially in the crosses to reflect the result of the election,” said Naohiro Nomoto, manager of FX trading at Bank of Tokyo-Mitsubishi UFJ. “Before the election, euro longs were built against commodities currencies such as the Australian dollar and the Canadian dollar but profit-taking mood is growing as commodity prices are recovering”
  • EUR/JPY little changed at 123.81 after climbing to 124.59, highest since May 2016
  • USD/JPY steady at 112.95; U.S. 10-year Treasury yield rises 1bp to 2.37%
  • AUD/USD weakens after March building data misses all estimates, coming in at minus 13.4% m/m, vs estimated 4% drop
    • Spot down 0.1% to 0.7416 and recovering from as low as 0.7386 after data was published

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Forex

Nigeria’s Diaspora Remittances Decline by 28 Percent to $16.8 Billion in 2020

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US dollar - Investors King

Nigeria’s diaspora remittances declined by 27.7 percent or $4.65 billion from $21.45 billion in 2019 to $16.8 billion in 2020, according to the World Bank Migration and Development report.

A critical look into the report shows remittances to sub-Saharan Africa declined by 12.5 percent in 2020 to $42 billion. This was largely due to the 27.7 percent recorded by Africa’s largest economy, Nigeria, which accounted for over 40 percent of the total remittance inflows into the region.

The report noted that once Nigeria’s remittance inflows into the region are excluded, remittances grew by 2.3 percent in 2020 with Zambia recording 37 per cent.

Followed by 16 percent from Mozambique, 9 percent from Kenya and 5 percent from Ghana.

The decline was a result of the global lockdown that dragged on the livelihood of most diaspora and unclear economic policies.

In an effort to change the tide, the Central Bank of Nigeria (CBN) introduced a Naira 4 Dollar Scheme to reverse the downward trend and boost diaspora inflows into the economy.

However, the reports revealed that other external factors like insecurities, global slow down, weak macroeconomic fundamentals, etc continue to discourage capital inflows.

On Tuesday, the CBN, in a new directive, announced it has halved dollar cash deposit from $10,000 to $5000 per month.

The move is geared towards discouraging overreliance on the United States Dollar and encourage local patronage and production.

Mr. Guy Czartoryski, Head of Research at Coronation Asset Management, had said in the report, “We looked at the top 10 banks and the breakdown of their deposits showed that 40 per cent of their deposits are in dollars and it is quite astonishing.”

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Forex

Deposit Money Banks Reduce Dollar-Cash Deposits by 50 Percent to $5000/Month

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United States Dollar - Investors King Ltd

Nigeria’s Deposit Money Banks (DMBs) have reduced the amount of United States Dollars that customers can deposit into their domiciliary accounts by 50 percent from $10,000 to $5,000 per month.

A bank official who preferred not to be mentioned confirmed the new policy to Investors King.

He, however, stated that the new policy does not apply to customers making electronic transfers as well as oil and gas companies and dollar payments into government accounts.

Checks revealed that the Central Bank of Nigeria (CBN) introduced the new policy to discourage the strong appetite for the United States Dollar, which has continued to rise.

A recent report has shown that despite persistent dollar scarcity, around 40 percent of bank deposits in the nation’s top ten banks were in dollars.

Mr. Guy Czartoryski, Head of Research at Coronation Asset Management, had said in the report, “We looked at the top 10 banks and the breakdown of their deposits showed that 40 per cent of their deposits are in dollars and it is quite astonishing.”

According to an analyst at ARM Securities Limited, Mr. Olamofe Olayemi, “this has to do with how much confidence the people have in the naira. Over time, we have seen significant depreciation in the naira.

“If you look at what happened in 2020, no one expected that the naira would be devalued twice in that year and even the outlook, this year is suggesting further depreciation in the naira.

“So, it makes sense to a lot of people to store their money in dollars. But, from the CBN standpoint, you agree with me that there is dollar scarcity.”

He, therefore, argued that the new policy might discourage financial inclusion and encourage cash outside the banking system.

Again, it is important for the flow of money to be captured in the system,” he said.

The CBN had extended its Naira 4 Dollar Scheme last week to further encourage dollar inflow into the Nigerian economy.

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Naira

Naira Closed at N411.25 to US Dollar at NAFEX Window

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Naira Dollar Exchange Rate - Investors King

The Nigerian Naira declined further against the U.S Dollar on Tuesday ahead of the Ramadan holiday to trade at N411.25 to a single U.S Dollar at the Nigerian Autonomous Foreign Exchange (NAFEX) window.

The local currency plunged as low as N420.23 per dollar during the trading hours of Tuesday despite opening the day at N410.33/US$ before settling at N411.25 to a US dollar.

Investors on the window exchanged $98.33 million on Tuesday.

At the parallel section of the foreign exchange, Naira traded at N483 to a United States Dollar; N673 to a British Pound and N580 to a Euro.

Foreign exchange rates remained largely unchanged at the bureau de change section, with the Naira trading at N482 to a U.S Dollar; N674 to a British Pound and N584 to a Euro.

Several factors continue to weigh on the Nigerian Naira, especially with the foreign reserves hovering around record low and crude oil output not at an optimal level.

Other factors like rising inflation rate and drop in economic activity due to COVID-19 effect on the economy and lack of enough fiscal buffer to cushion the economy.

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